Intercontinental Exchange, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Amounts are in U.S. dollars; financial statement amounts are generally in millions. ICE operates Exchanges, Fixed Income and Data Services, and Mortgage Technology businesses. Prior periods were recast for the company’s segment realignment. Comparisons for Mortgage Technology are affected by the September 2020 acquisition of Ellie Mae, whose results were included in the prior-year period only after acquisition.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue less transaction-based expenses | $1.802B | $1.411B | $5.306B | $4.365B |
| Operating income | $878M | $627M | $2.569B | $2.253B |
| Operating margin | 49% | 44% | 48% | 52% |
| Net income attributable to ICE | $633M | $390M | $2.531B | $1.563B |
| Diluted EPS | $1.12 | $0.71 | $4.48 | $2.83 |
| Cash from operating activities | Not stated for quarter | Not stated for quarter | $2.130B | $1.815B |
- Q3 revenue less transaction expenses rose 28%; operating income rose 40%. Nine-month revenue less transaction expenses grew 22%, while operating income increased 14%.
- Management’s non-GAAP adjusted diluted EPS was $1.30 for Q3 and $3.80 for the nine months, versus $0.97 and $3.26, respectively, in 2020. These measures exclude items management considers outside core performance and are not GAAP measures.
- Q3 segment operating income: Exchanges $629M, Fixed Income and Data Services $139M, and Mortgage Technology $110M. Nine-month figures were $1.865B, $393M, and $311M, respectively.
- Nine-month revenues less transaction expenses by segment were $2.842B for Exchanges, $1.403B for Fixed Income and Data Services, and $1.061B for Mortgage Technology. Fixed Income and Data Services annual subscription value was $1.624B, up 5.6% year over year.
Balance sheet, cash flow and capital
- At September 30, cash and cash equivalents were $583M; restricted cash and cash equivalents totaled about $1.408B. Cash from operations was $2.130B for the nine months. Investing activities provided $872M, including $1.237B from the Coinbase investment sale; financing activities used $2.928B.
- Total debt was $14.225B, down from $16.537B at December 31, 2020. It included $12.9B of fixed-rate senior notes and $1.324B of commercial paper. Fixed-rate notes had a weighted average maturity of 15 years and average cost of 3.0%. Commercial paper’s weighted average rate was 0.24%, with 28 days’ weighted average remaining maturity.
- ICE had no borrowings under its $3.8B revolving credit facility at quarter-end; $2.3B was available for working capital and general corporate purposes after backstop and subsidiary commitments. The facility maturity was extended to October 2026 in October 2021.
- ICE paid $561M in dividends during the nine months and made no share repurchases. The remaining board-authorized repurchase capacity was $1.2B. Management expected 2021 capital expenditures and capitalized software development costs of $430M–$450M.
- Clearing-related margin and guaranty fund assets and corresponding liabilities were each $108.698B at quarter-end. These customer-related balances should not be interpreted as unrestricted corporate liquidity.
Material changes and unusual items
- ICE sold its Coinbase investment in April for $1.24B and recorded a $1.227B pretax gain ($898M net of tax). This materially boosted nine-month reported net income; adjusted results exclude the gain.
- Operating expenses increased 30% year over year for the nine months, partly reflecting Ellie Mae consolidation, higher compensation and technology costs, and increased depreciation and amortization. Nine-month amortization of acquired intangibles was $469M.
- Q3 transaction and clearing activity benefited from increased energy and financial market volumes. By contrast, first-half 2020 comparisons benefited from pandemic-related volatility. Cash equities revenue was weaker year to date, while recurring data services and listings grew.
- On October 15, Bakkt completed its merger with a SPAC. ICE retained an approximately 68% economic interest but a minority voting interest; ICE expected to deconsolidate Bakkt in Q4 and account for it as an equity-method investment. ICE expected a Q4 pretax gain of approximately $1.3B. These were subsequent events, not Q3 recognized results.
- ICE agreed in October to sell its 9.8% Euroclear stake for €709M, subject to customary conditions and regulatory approval. Its September 30 carrying value was $701M. Q3 included a $34M fair-value gain and $30M of Euroclear dividend income.
Outlook, risks and contingencies
- The filing provides a 2021 capital spending estimate but no specific earnings or revenue guidance. Management noted that operating expenses may rise with business growth, acquisitions, integration and investment.
- Key risks include market-volume and volatility changes; mortgage-market trends; competition; regulatory developments, including Brexit and EU/UK clearing access; cyber and operational resilience; acquisition integration; and foreign-exchange movements.
- ICE reported $14M of legal-settlement accruals during 2021. In the SPAN trademark case, a court had awarded CME approximately $16M for infringement after finding for ICE on other claims; the matter was resolved in October, but settlement terms are not clear in the filing text. One Live Well-related creditor claim remained unresolved.
- Clearing houses’ estimated maximum exposure under their performance guarantee was $172.2B before considering margin, guaranty funds, collateral and insurance. The filing describes this as a hypothetical one-day market-movement estimate, not an expected loss; actual exposure could differ materially.
- Management stated disclosure controls were effective at quarter-end and reported no material changes in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Separate recurring operating growth from the Coinbase gain and other non-operating items; review GAAP and adjusted results together.
- Assess sustainable Mortgage Technology growth and margins using comparable periods that account for Ellie Mae’s acquisition date and integration costs.
- Track debt, commercial-paper refinancing and liquidity availability, distinguishing unrestricted cash from restricted and customer clearing balances.
- Confirm the timing, accounting treatment and realized proceeds from the Bakkt deconsolidation and Euroclear sale, including whether the expected gains were realized.
- Review the outcomes of the SPAN and remaining Live Well matters, as well as clearing, regulatory, cyber and foreign-exchange exposures.